Category: Personal Finance

I get a lot of requests to do guest posts for Four Pillars so I thought I would publicize some guidelines for these.   As well, I’m also interested in paid writers as well.

Benefits of writing for Four Pillars

Writing for Four Pillars is a great opportunity to share your experience and knowledge with a large readership and gain experience and feedback about your writing. If you are a blogger or writer, this is a great way to build your professional portfolio and/or drive traffic to your website.

Writing opportunities

I am interested in publishing articles by guest authors as well as adding a paid writing position or two for selected topics. The paid articles would be on a freelance basis.  Please contact me for more information including article requirements and payment details.  My email is qffpillars at gmail dot com.

Guest post guidelines for Four Pillars

Guest Posts do not receive payment but are a great way to gain experience and exposure for your website, or to build your portfolio. Please use these guidelines:

• Articles should be well-written, must be original, and should not have been previously published elsewhere.
• Articles should be related to personal finance in some way.  Please e-mail me with proposed topics if in doubt.
• Please include a short author bio with a link back to your website and RSS feed if applicable.
• Feel free to add a reasonable number of links back to your own web site within the content, but please do not use this as an opportunity to stuff the article full of keywords.
• I retain full editorial and approval rights, including removing and/or substituting links.
• No affiliate links.
• Feel free to send image recommendations with the article. Please only include images that allow for derivatives unless you own the image (Flicker is a great source of images that allow for derivatives under the Creative Commons License).
• Guest posts can be republished on your site after a minimum of 3 months have passed.
• Please send articles in html or in a Word document (html preferred).

If you are a writer and would like to submit an article for consideration, please send me a message via my contact form or email to qffpillars at gmail dot com. I look forward to working with you!

The differences between the paid articles and guest articles:

• Ownership – Paid submissions become the property of this website; guest articles may be republished by the author after a minimum of 3 months has passed. Anyone can apply for either position at any time.
• Links – Guest posters will be allowed more leeway in terms of links back to their own sites.

Thanks to Cash Money Life, Moolanomy and Good Financial Cents for their inspiration for this post (ie I copied them).

I always enjoy features in MoneySense or the Globe and Mail where they profile a family, highlight their current money issues, then consult with a panel of financial planners for suggestions on what the family should do moving forward.  Some time ago in MoneySense, they talked to a couple who worked, lived a frugal lifestyle, were paying down their mortgage on an accelerated schedule and fully funding their children’s RESPs, but at the end of the day had nothing left for retirement savings.  They asked what they were doing wrong.

Most of us remember at some point seeing the chart or hearing the idea that if you saved $200 / month from your 25th birthday until you retired, you’d have more than someone who saved $400 / month from their 35th birthday until they retired.  That’s the magic of compounding!  Many of us see this type of thing and it motivates us that start saving early and often.  HOWEVER, there’s another side to the issue.

It’s probably MUCH easier for the typical 35 year old to save $400 / month than it is for a typical 25 year old to save $200.  As you get older, usually your earning power goes up, and at a certain point your expenses go down (once your mortgage is gone and the kids have left home).  Even though you have less time for compounding to do its thing, you have the capacity to save more.

This was the response from the experts to the couple mentioned at the beginning of this post.  They were already taking care of a number of big expenses, and the experts said they needed to put retirements savings on hold.  With a paid off mortgage, and significant savings for the children’s education in place, at a later date they’ll be capable of directing far more of their income at retirement.

The other comment, which I also felt was worthwhile, is the experts warned that they shouldn’t live an impoverished life NOW to avoid living an impoverished retirement.  As Buffett might say “it’s like saving up sex for your old age“.

I was talking to a friend in a roughly analogous position recently.  She’s a mind-30s professional and opened an office in the last couple of years.  She’s paying all the bills and funding her modest lifestyle, but doesn’t have a lot left for retirement savings or investing.  When she was worrying about this, I told her that she should be patting herself on the back for having a successful business (that’s far beyond ramen profitable).  Her financial focus right now is growing her business, which is what it should be.  It will naturally compound and begin growing organically (word of mouth and all the marketing she has in place), at which point she can start directing more money toward retirement (and keep increasing this as her business grows).

This all certainly isn’t to say that saving (and especially retirement saving) is unimportant.  If someone says they aren’t at a stage in life to be saving for retirement then buys a plasma television or an expensive furniture set, I’m not going to be able to get behind their decision.  Instead, I’m saying that if you’re saving for your kid’s education, paying down your mortgage or investing in a business, you ARE preparing for retirement (just not using an RRSP).

Don’t beat yourself up.

I often see kite surfers zipping around Lake Ontario on windy days and I think it would be a great sport to pick up.  The only problem is – what do I do with the kids?  I can’t very well go flailing around in the water with my young kids patiently waiting on the shore for hours at a time.  You might be thinking that maybe my wife could look after the kids – but she is home with the kids all week so I’m not sure that “playing around in the water” qualifies as a bonafide excuse to leave her with the kids.

For those of you with young kids – how do you do activities that don’t involve the kids?  Do you just give up on them altogether?

Here are some pics I took last weekend of kiteboarders:

All photos taken with my trusty Canon 200sx.

I’ve travelled in developing countries such as Thailand, and one of the interesting things is that they won’t protect you from yourself.  You might be climbing up a mountain and where in the West there’d be a massive fence to prevent anyone from falling over the edge, in a developing country there’s a single chain around the outside.  Perhaps the message is “if you’re dumb enough to fall off a mountain, we’re not going to kill ourselves trying to prevent it”.  Another example is the ability to come into close contact with wild animals.  At a Thai zoo they were letting visitors bottle feed a tiger cub (which was VERY cool, but I suspect even a baby tiger could do some damage if it got its claws or teeth into you).  They also have elephant shows that involve things such as having the elephant step on an audience member.  Having a 10,000 lbs animal standing on you isn’t very bright, but if the audience member is willing to volunteer, the people running the show are happy to let it happen.

We all have our bone-head moments, and it’s no good if it leads to serious injury or death.  I remember one time at a camp fire I decided it was a good idea to move one of the rocks around the fire, reached out to grab it and gave myself a good burn.  The people with me were sympathetic but (rightfully) told me it was a pretty dumb thing to do.  And you know that elephant thing?  Yup, I did that too (it put one of its feet right on my chest, knocked the wind out of me).

Beyond physical danger, there’s also numerous people looking to take advantage of consumers by selling shoddy products (or outright fraud).  All levels of government try to protect their citizens from this but, as with many government endevors, they do a painfully bad job of it.  I’m certainly not blaming the victims, but I sometimes suspect there’s an unintended consequence happening where such attempts end up leading to MORE harm to consumers.

Because people living in a western country are protected so much, they start counting on it.  Some people ask, after seeing a commercial for the “$49.99 Path to Instant Wealth!”, if it isn’t true, how can they be advertising it?  Wouldn’t the TV station or someone in government quickly shut them down???  Others may not be so upfront about their feelings, but in their heart-of-hearts they can’t believe a scam artist would be advertising in the Globe & Mail’s classifieds or on network television.

I’m planning at some point to do a post on the anatomy of an infomercial, but basically there’s a group of people who’ve made an art of quickly gearing up some bogus product, advertising the heck out of it, then shutting down the company and draining all the cash as the regulators come knocking.  They re-brand themselves, and start pitching something similar, rinse and repeat.  The laws to prevent this type of thing (and people enforcing them) just can’t keep up.

As an aside, you sometime get a similar justification on the other end FROM the scam artist.  Apparently a number of people involved in running “Nigerian advance fee scam” truly believe that Western government reimburse citizens for money they’ve lost to the scam artists.  This is how they morally justify what they’re doing (“they’ll get all the money back from their government, so it’s ok if I steal from them”).

Once people become more trusting, because they’re used to this protection, it becomes easier for them to harm themselves, which leads to greater protection, and people making worse choices in a vicious spiral (every time you make it idiot proof, they invent a better idiot).

“Well Mr. Cheap,” you may ask, “do you want us to go back to a wild-wild west marketplace where scammers operate with impunity and there’s little protection for consumers?”  Yes, I suspect in many ways this would be better (or at least should be taken into account when considering expanding consumer protection).  We’d all get burned early and often, and learn that you have to factor the merchant’s trustworthiness into any transaction.  People such as Ellen Roseman would become even more important, as they’d propagate information about who is behaving well and who is behaving badly.  I think the door-to-door energy marketers are scum, but I also think they’ve made Ontario consumers far more cautious about doing business with strangers who come knocking at the door (which is good).  The obvious counter-argument would be that the barriers to commerce of having to evaluate the trustworthiness of everyone we want to do business with (and the varying ability of each of us to do so), would lose us more than any gains that would be made by encouraging more cautious consumers.  I don’t believe this, but I don’t have anything but a gut feeling for doubting it (and would be delighted if someone could provide compelling evidence that this is the case).

Canadian Capitalist wrote a very interesting post yesterday highlighting the fact that there are some disabled former Nortel employees that paid into the “self-insured” LTD (long term disability) plan offered by Nortel and now might lose their benefits.  As Thicken My Wallet pointed out in the comments – this basically a loophole in the law – the contributions made by the employees that were in the LTD plan did not belong to Nortel and shouldn’t be considered part of the assets available to creditors.

Ram correctly points out that the government should fix this – I find it ridiculous that they were able to change the RIF minimum payment rules last year thanks to CARP’s constant nagging which was a complete waste of time yet something important like this can’t get changed.  Even though I said differently in the comments (since I didn’t fully understand the situation prior to TMW comments) I agree that the government needs to help those people and fix the rules on this matter.,

That said – I still want to talk about government bailouts of company defined benefit pensions!

One of the big problems with government bailouts of company pensions is that is that those are private contracts or “deals” between the employee and the company – often via a union.  It has nothing to do with you or me or the government.

Technically it’s not anyone else’s responsibility to help someone who made a private deal with a company and it didn’t work out.  It’s the same thing as if someone had all their investments in their own company stock and it goes bankrupt.  Anytime you make a long term deal with someone else then you face the risk of the other party not fulfilling their end of the bargain.  Whether it’s your pension or a lawn care contract – it’s your responsibility.

Now I’m not so hard-hearted that I think these people shouldn’t be helped at all – I would have no problem with the government helping them out if necessary.  But what I would really like to see are some changes for the future to prevent it from continuing to happen.

Some suggestions

Outlaw employer-run defined benefit pensions.

This is a bit extreme but it does take care of the problem where employees base their financial planning on an expected pension and run into trouble if the pension is reduced (especially if it reduced to zero).  Most workers use some combination of rrsp, tfsa, CPP and OAS for their retirement so it’s not like there aren’t alternatives to defined benefit pensions.

Allow opting out of defined benefit plans.

One problem that exists now is that normally someone working for a company that provides a defined benefit plan has to participate in it.  This doesn’t give the worker any choice in their pension since the contributions made by the employer and employee count against any RRSP contribution room so the employee might not be able to save enough outside the company pension.  Allowing the employee some choice will give the employee more responsibility and will reduce the obligation for the government if things go bad.

Only have government run DB plans

In this case companies would not be allowed to run their own plans but could participate in a government run (the CPP would run it) pension plan.  The main difference is that the liability would be on the government so everyone who participates in these plans would be on equal footing.  These plans would also be fairly conservative so they might not be as overly generous (and risky) as some existing pension plans.

Employee education

I think this one is a complete pipe dream but if you could educate the employees that:
1)  Their pension plan is only as solid as the company and the pension management and things don’t always work out.  The pension might not be there for them in the amounts promised.
2)  Saving outside their pension might be a good idea.
3)  Buying company stock is very risky because they work there too.

Don’t allow employees to own company stock

This one has nothing to do with pensions but always seems to come up when public companies such as Enron go out of business.  This is too hard to regulate and really falls under the category of “education” but it would be one way to force employees to diversity – Bad Money Advice had an excellent article regarding the follies of owning company stock. Bottom line is that you shouldn’t own any – if you do have some because of special deals/payments etc then sell it as soon as you can.

Conclusion

While I do feel bad for employees and retired employees who have retirement plans go bad – bailing out each group when they run into problems isn’t the answer.  Leaders of public companies have shown that they manage for one reason and one reason only – for the mega-bonuses they can get if the company outperforms.  They generally do this by taking extra risks – worst case scenario is that they get let go with a big severance package.  Or sometimes they just cook the books to make more money for themselves.

If you favour more regulation then don’t let these companies be responsible for the future of their employees.  If you favour less regulation then give employees some education on the risks of having a company pension plan and allow them to opt out.

Please note that Mr. Cheap wrote a very good post yesterday about H1N1 so check it out if you haven’t already – a lot of great comments.

H1N1 (Swine flu) vaccine hysteria has hit my city in a big way – last week there were people lining up for 6 hours to get shots for their kids and presumably themselves as well.  Since the initial clinics the vaccine has only been allowed for high risk groups:

• Pregnant women.
• Children aged 6 months to 5 years.
• People under 65  with chronic conditions.
• People who live with infants under 6 months and/or with immunocompromised people.
• Healthcare workers.

I personally haven’t been that worried about Swine flu so far this year but once the vaccine became available it seemed that the public awareness and concern went up a notch or two.  I know lots of my friends who have kids are worried about the flu and naturally are also worried about the vaccine.  Is it safe?  Will there be side effects?  Will the needle hurt?  (ok, that was my concern).  Here are some vaccine myths.

I think we are going to get the vaccine for our kids – as I read recently, while there might be some risk from the vaccine, it is dwarfed by the risk from the flu itself.  The analogy they used was seatbelts – in some cases seatbelts (and airbags) do more damage than good but overall your odds of survival in a car crash are far better if you are wearing a seatbelt.

What do you think?  Should everyone line up for 6 hours to get a shot?  Are you going to wait a few weeks to let things settle down?  Are you going to avoid the shot altogether?

I’ve been amazed at people’s reaction to H1N1 for a number of reasons.  I was *SHOCKED* that they were able to get the name changed from “Swine Flu” to H1N1 (people involved with the pork industry started oinking immediately after the pandemic started and amazingly managed to get it renamed).  I still like to call it “the pig flu”.

I’ve also been amazed at the crazy reaction people have been having, trying to avoid contact with other people and lining up for hours to try to get vaccinated (and coming close to rioting when they’ve run out of vaccine).  Pandemic is a scary word, but I’m going to go on record saying that we’ll look back at H1N1 and say (much like Y2K or SARS) “what did we get so worked up about?”

Please check out Mike’s post – Should I get H1N1 Vaccine for my kids?

As of Oct 26th, 86 Canadians have died.  This is sad.  Since the flu debuted in April, let’s call this 13 people / month or 0.41 Canadians a day.  The average Canadian has a (0.41 / 33,212,696 [Canadian population]) = 0.00000123%) chance of dying from the pig flu.  Another way of expressing this is you have a 1 in 81,006,575 chance of dying from the pig flu EVERY DAY!!!

Given that Americans have a 1 : 280,000 ANNUAL chance of being struck by lightening (for the sake of simplicity, let’s assume comparable odds for Canucks),this would give us a 1 : 102,270,000 (280,000 * 365.25) daily chance of being struck by lightening (slightly less likely than dying from catching the pig flu).  How many precautions are you taking to avoid that?

In 2005, 2,860 “road users” died.  At 7.83 / day, this gives us 19.1 TIMES the chance of dying on a road (in a car, as a pedestrian or as a cyclist) than from H1N1.  This actually UNDERSTATES the comparison, because we considered all Canadians with the flu, but only “road users” are at risk of dying on the road.  Remember also, this is just fatalities, we’re ignoring non-fatal injuries.

To switch it around and consider a happier thought, the chance of winning the Lotto 649 is 1/13,983,816 = 0.000007151%, or more than double your daily chance of dying from the swing flu, EVERY TIME YOU PLAY!!!  Should we all run out and buy tickets?

Of the hordes stampeding to get vaccinated, how many are avoiding roads?  If we consider the risk of death associated with road use to be reasonable (which, clearly, most of us do), how can we be panicking over something that is far less likely to affect us?

Some may say “well, yes, but there’s a CHANCE it’ll kill me, so isn’t it worth taking some small precautions to avoid it?”.  Yes, sure, but remember there are INFINITE ways to die.  Some of the actions you’d take to avoid some, will INCREASE your chance of others (say you become a shut-in to avoid the dangers outside your home, you’ve now increased your exposure to all the ways you can die at home).  If you can easily get vaccinated and it’ll reduce your stress level, knock yourself out.  Just to pump up the stress back up a little, think about all the things that are more likely to kill you that you haven’t even thought of!

What does this mean for a personal finance blog?

First of all, behaving rationally is worthwhile in life, but it’s VITAL in investing.  Getting caught up in the madness of crowds is what leads to dot-com (or tulip) bubbles.  Just by identifying the craziness as craziness (and getting off of the ride), you can improve your returns MASSIVELY.

Secondly, I’m not sure what they are but I think there must be some killer deals to be had based on the public’s over-reaction to this.  Perhaps now is the time to book a flight and travel on the cheap?  Maybe some stocks are beaten down with investors expecting the next black plague.

How worried are you about H1N1?  Can you think of any investments that would pay off if H1N1 turns out not to be a big deal?

This is my review of Investing Made Simple written by Mike Piper who is the author of the investing blog Oblivous Investor. I’ve highlighted both Mike’s blog and book before and I was quite happy to review the book for him.  I think it’s a great resource for a non-investor or someone who is just getting started and needs a good introduction in one quick book.  It’s reasonably short at 100 pages and contains a lot of good basic investing information to help someone get started with investing.

This is a fantastic book to give as a stocking stuffer idea for that friend or relative who needs some investment guidance but you don’t feel comfortable broaching the subject or maybe you don’t know quite enough yourself to try to teach someone else. It might even be a good book for you if you lack confidence in the investment area.

To order this book:

Here are the chapters titles with some notes

Chapter 1 – Building blocks of investing.

Explanation of various investment products such as mutual funds, stocks, exchange traded funds and bonds.

Chapter 2 – Types of investment accounts

The basic concepts behind common investment accounts such as  Traditional and IRA Roths, 401ks – please note that this is the only chapter that doesn’t apply to Canadians.

Chapter 3 – Risk and Return

This chapter explores the idea about taking on higher risk for potentially higher return. Over the long term it can be worthwhile to take on some extra risk with equities.

Chapter 4 – How much money do you need to retire?

Mike goes over a very simple formula to do a rough estimate of how much money you will need to save up in order to retire.

Chapter 5 – Don’t bother picking individual stocks

He explains quite clearly why it is a waste of time to try and pick your own stocks and suggests low-cost mutual funds instead.

Chapter 6 – Index funds win.

Brief explanation of low-cost index funds and why they should be the cornerstone of your portfolio.  The perils of picking ‘hot’ funds.  A warning that not all index funds are low cost and he also discusses a strategy to lower the costs if you are mainly invested in a limited-option 401k plan.

Chapter 7 – Asset allocation

This chapter starts off talking about the tradeoffs between bonds/stocks. Buying home country stocks vs international – currency risks.  He concludes that it’s better to have an asset allocation that is too conservative than too aggressive.  I agree!

Rebalancing is also covered as well as target date retirement funds.  It is mentioned that while the concept is great -the execution can be weak with managers using expensive funds. Check to make sure the asset allocation is in line with your desired allocation

Chapter 8 – Putting it all together

Mike goes over how to implement your asset allocation plan – which indexes are good ones to follow. Also includes a very simple sample portfolio. Watch your expenses!

Talks about some more differences between index funds and etfs. One thing that might have been mentioned here is that index funds transactions  can be easily automated whereas ETFs trades can’t be.  You can construct an extremely well diversified, low-cost portfolio using just a few index funds.

Chapter 9 – Think long term

He covers the importance of not being spooked by drops in the market or the financial media (ignore them).  Don’t look at your portfolio too often and don’t panic.  Conversely – if the markets are doing well – don’t be tempted to buy more stocks – stick to your plan.

Chapter 10 – How to find a good advisor

He says that most investors don’t need an investment advisor but there are situations where one might be required. Various types of advisor compensation are discussed. He makes a good point that the dreaded “commission” based advisor can be the cheapest option for a lot of people with smaller portfolios.

Chapter 11 – Automate your investing

If possible then set up automatic contributions via payroll options at work or with your investment company. Pay yourself first.

Chapter 12 – Beware the hot fund

Not unlike the hot stove – hot funds are just as dangerous. Keep in mind that hot funds (and stocks) are not likely to stay hot and there’s a good chance that it took on extra risk to get the eye-popping return.

Chapter 13 – Turn off the tv

Good advice in general – this basically says don’t watch the daily market performance.

Chapter 14 – Steer clear of stock-picking newsletters

Don’t buy stock pick suggestions from anyone.

Chapter 15 – Conclusion

Keep it simple.

To order this book: